Where Other Asian Countries See the Yen

The yen's recent slide has been impressive, no doubt. And if you ask Japan's neighbors if they think the weakness is overdone, you get a very clear response.

Steven Englander, global head of G10 FX strategy for Citigroup, has just returned from a trip to Asia, and he reports that he "met no one who thinks there is a fundamental case for USDJPY lower even at current levels." In fact, he says, "few investors think that there is necessarily a 'natural' JPY level below 90 and it was not easy to find a case even below 100" against the dollar.

That's considerably lower than the yen's current level, even after its swoon over the last two months.

Part of what's ailing the yen, Englander says, is that a territorial dispute between China and Japan is curbing Chinese demand for Japanese products - at a time when the Japanese economy is already hurting.

Whatever the cause, the weaker yen represents a spot of good news for Japanese corporations competing with companies in Korea, Singapore, and Taiwan. Englander says he heard estimates that a 10% decline in the yen generates weakening of 3% to 4% for Japanese companies' Asian competitors.

It's also unlikely that officials from other countries will criticize Japan for allowing the yen to fall so far so fast, Englander says. "Overall, there are too many countries who can be accused of currency intervention to single out Japan. Moreover, Japan's hand at the moment is too weak for 'peer pressure' to change their intentions." It's quite possible the Abe government is only too happy to see what a weaker yen can do to jump-start Japan's ailing economy.